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| Home > Public Policy > Policy Letters and Statements > July 24, 2006 | ||
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July 24, 2006
U.S.
House of Representatives Dear Representative: The undersigned labor unions urge you to oppose the “Business Activity Tax Simplification Act of 2006”, H.R. 1956, when the full House votes later this week. We oppose this problematic legislation because it would impose an unfunded mandate and reduce tax revenues of states and localities by at least $3 billion per year. It restricts states and localities from determining and retaining their own tax systems, and encourages and rewards corporations for aggressive tax avoidance. According to the Congressional Budget Office (CBO), “H.R. 1956 would amend current law to prohibit state and local governments from taxing certain business activities that are currently taxable.” H.R. 1956 is designed to reduce the taxes now being paid to states and localities. It does this by prohibiting states and localities from imposing existing taxes on legitimate business activity in the state by creating a new physical presence rule would significantly weaken the current “economic nexus” standard that is now used. In addition it would prohibit states and localities from imposing certain business taxes on services, intangibles, media and financial services. Currently, Public Law 86-272 prohibits jurisdictions from imposing taxes on the sale of goods, the law permits jurisdictions to impose taxes on the sales of services and intangibles. H.R. 1856 also prohibits states and localities from continuing to impose many existing business taxes. Currently, although Public Law 86-272 prohibits jurisdictions from imposing a corporate income tax, the law permits jurisdictions to impose other taxes such as a value added tax like Michigan’s Single Business Tax or a gross sales tax like Washington’s Business and Occupation Tax. Through these changes H.R. 1956 does real harm to states and localities. CBO’s July 11, 2006 Cost Estimate for H.R. 1956 reports “the costs – in the form of forgone revenues – to state and local governments would exceed $1 billion in the first full year after enactment and would likely grow to about $3 billion, annually, by 2011.” CBO also determined H.R. 1956 is an unfunded mandate - “by prohibiting state and local governments from taxing certain business activities, H.R. 1956 would impose an intergovernmental mandate as defined in the Unfunded Mandates Reform Act (UMRA).” This unfunded mandate and $3 billion annual loss would worsen state and local budget problems and force cuts to education, health care, job creation and other vital services. Worse, CBO reports budget problems would be concentrated in few states - “while virtually all states would lose revenues, about 70 percent of the estimated losses would come from ten states: California, Florida, Illinois, Michigan, New Jersey, New York, Pennsylvania, Tennessee, Texas, and Washington.” Although states have closed their recent record budget deficits through budget cuts, corporate income tax revenues have already declined. The Multistate Tax Commission reports states lost $3 billion-$7 billion in 2001due to domestic (interstate) tax sheltering. Some corporations design their operations to avoid nexus in states where they earn profits and produce a paper trail of "nowhere" income that no state is permitted to tax. H.R. 1956 would ratify these current tax shelters, increase the number and magnitude of tax shelters and tax shielding, and reward these inappropriate activities. These combined practices will shift the tax burden further onto state and local residents. Congress should oppose restrictions on state and local government, which prevent them from creating viable and equitable tax systems. Sincerely,
American Federation of State,
County and Municipal Employees
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